Risk management research project major international business topic khang dien house's risk management

INTRODUCTION Khang Dien Group KDH 1s a Vietnamese real estate development firm that was established in 2001.. However, being in the real estate business entails a number of risks and unp

HO CHI MINH CITY UNIVERSITY OF FOREIGN LANGUAGES —

INFORMATION TECHNOLOGY FACULTY OF BUSINESS ADMINISTRATION

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Risk Management Research Project

Major: International Business TOPIC: KHANG DIEN HOUSE'S RISK MANAGEMENT

Student’s name: Tran Ngoc Tuyen

ID Number: 20DH121589 Student’s name: Kieu Thi Uyen Chi IDNumber: 20DH120450

Student’s name: Vo Hong Nhu

ID Number: 20DH121569 Class: RM (Monday 5-6)

Course: 2022 - 2023

HCMC, 05/ 2023

TABLE OF CONTENTS INTRODUCTION cccccsssecsssssssesscsesscssssessssessssssesssssssscsessesessessssesssseessssssssesssscesssssssesesensseeeess 2

1 KHANG DIEN HOUSE?S RISKS IN THE REAL ESTA TE MAR.KET 3

TL CAUSE OE THOSE RISKS SÁT HH HH KH TH HH HH TH 5

1 SubJ©CtIV€ ÍaCfOTS ác Sàn HH HH HH HT HH HH HH HH HH TH ĐH kYÊt 5

2 ODJ€CEIV© ÍACÍOTS LH HH HH HH HH TH TH HH TH HT HT HT HH HH Hy 5

TH SWOT OF KHANG DIEN HOUSE cà HH HH HH HH Hệ ĩ

TV RISK MANAGEMENT PROCESS (TR) Ặ ch, HH HH HH HH ky 7

1 RecognIifion OẨTISS - cá 1à HH1 HH HH TH TH TH HH TH Tà HH HH Hư 7

2 Rating/ evaluation OŸ TIsK§ cà HH TH TT TH TH HT TH TH HH TH HH Lớn HƯU 8

3 Responding to significant rIsks (4Ï S) - cà HH HH HH HH TH TH HH HT HH HH Hà HA, 8

4 Resourcing COITOÌS - cành HT HH TH HH TH TH TH HT TH TH Hư 9

5 Reaction pÏann1ng - - + 4 và TY KH TH TH TH HH HH HT TH Tà HH HH HH tr 10

6 Reporting on rIsK sách HH TY HT HT HH HT TH TH HH Hkt 10

7 Reviewing and monitoring the rIsk mtanag€I€HI 5: 52+ 55 52 E*‡*‡3E‡EEEekkrkeree 10 CONCLLUSION HH HH HH HH TH HH TH TH HT Lớn TH TH Hi 11 REFERENCES HH HH Tàn Tà TH TH HT HT HT HT TH Hư tre 12

LIST OF FIGURES Figure l Cash flow of KIDH cà HH HH HH TH HH TH HC HH HH KH HH 3 Figure 2 KDH's financial s†afeImenfs - các nh HH HT TH HH HH gà Hi 4 Figure 3 KDHs InvenfOTV OV€T †€ €8TS Tà HH Hàn HT HH HH HH HH 7

LIST OF TABLES Table Í SWỌT anaÌys cà HH HH HH HH HH HH TH TH HH KH TH HH HH ĐH TH HH ĩ Table 2 Likelihood and Magnitude mafTIX - 5 0 2 11 3115111123111 HH HT TH HH HH HH Hy 8

INTRODUCTION

Khang Dien Group (KDH) 1s a Vietnamese real estate development firm that was established in 2001 It primarily engages in the residential and commercial property sectors

of Ho Chi Minh City, Vietnam The organization's operations include real estate development, construction, investment, and management services The property holdings of Khang Dien Group comprise flats, townhouses, villas, shophouses, office buildings, and industrial parks Moreover, Khang Dien Group has subsidiaries that provide other services, including event planning, property management, advertising, and interior design The business has gained multiple major awards in Vietnam for its commitment to quality, sustainability, and customer satisfaction, including the Top 10 Real Estate Developer Award from Vietnam Report

However, being in the real estate business entails a number of risks and unpredictability that may have an influence on Khang Dien Group's financial and operational performance

As a result, it is critical for Khang Dien Group to identify, analyze, and manage these risks

in order to reduce their influence on the company's ability to fulfill its strategic goals This risk management report gives an overview of Khang Dien Group's present market and business setting, as well as a study of specific real estate risks Thereby, the aim of this study is to build or refine a risk management strategy for Khang Dien Group, enabling it to adapt and respond to unexpected situations, minimize potential risks, and ensure long-term success in the competitive real estate market

I, KHANG DIEN HOUSE’S RISKS IN THE REAL ESTATE MARKET

¢ Heavy negative business cash flow

With the real estate market deteriorating, it is difficult for real estate enterprises generally, and Khang Dien specifically, to increase income and produce fresh cash flows through sales activities

Khang Dien has consistently maintained a business cash flow deficit and has had to mobilize external resources to finance since 2018 In 2018, the Company reported a business cash flow of more than VND 718 billion, a cash flow of more than VND 163 billion in 2019, and a cash flow of more than VND 2 trillion in 2021

In the first quarter of 2023, net cash flow from operational activities remained negative at VND 1,017 billion, while the same period was likewise negative at VND 480 billion

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Figure 1 Cash flow of KDH

¢ Long-term debt, mostly secured by land use rights increased by more than VND 3,000

billion in Just half a year

Khang Dien House's notable long-term loans include a VND 300 billion bond issuance due

on June 14, 2025, with a 12% annual interest rate The remainder is a bank loan, with the majority of the secured assets being land use rights in Khang Dien's projects

Furthermore, the most significant are five loans totaling 1,160 billion VND at the Phuong Dong Commercial Jomt Stock Bank, which is backed by Land Use Rights in Binh Trung Dong Ward, Thu Due District, City Ho Chi Minh City; 1,000 billion VND acquired by

3

project-related property rights When housing 11A, Binh Hung commune, Binh Chanh district, HCMC; VND 306.3 billion secured by property rights arising from the Le Minh Xuan expansion project; 145 billion VND secured by property nghts arising from the Le Minh Xuan expansion project Recorded in the interim financial statements of Khang Dien Housing Trading and Investment Joint Stock Company shows that at the end of the second quarter of 2022, its liabilities were recorded at 8,009, 9 billion VND

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sé NGUON VON minh Nghin VND Nghin VND

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310 Nơ ngắn nạn = 2.673.148.256

311 Phải trả người bán ngắn hạn 14 198.772 83

312 Người mua trả tiền trước ngắn hạn +5

313 Thué va cac khoản phải nỡp Mh& nước 16(b)

315 Chi phi p gan han 17(a)

318 Goanh thu chure thuc hién ngan han

319 Phải trả ngắn hưn khác: 18(a)

320 Vay ngắn hạn 19a) if 814.616 -000

322 Quỹ khen thưởng, phúc lợi 20 73 B20 sũng 2

330 No dai 5.436,792.297 1.897.714.421

333 Chi ae Phái tra dai nv 17) S +

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337 Phải trả ‹ = al kha 18(b)

3338 bad 19(b)

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342 Dự phòng phải trả đài h

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410 Vốn chủ sởhữu

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418 Quy dau tu phát triển 23 236.977 7

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440 TONG NGUON VON 19.386.270.710 14.372.698.213

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Figure 2 KDH's financial statements

¢ Khang Dien must shut down its affiliate

Khang Dien has benefited greatly from bargain shopping in the past However, this real estate business's profit fell in the first quarter of the year due to the fall in revenue

After the first quarter of 2023, when business conditions had deteriorated, Khang Dien House announced a resolution to dissolve Development Joint Stock Company Nguyen Thu Real Estate and Lien Minh Real Estate Trading and Investment Company Limited, even though the period's profit had increased

II CAUSE OF THOSE RISKS

1 Subjective factors

Reputation: Khang Dien has a solid track record of generating initiatives over the past 20 years and a distinct product position Khang Dien has needed to raise outside funds for financial support while consistently maintaining a high business cash flow from 2018 until now Khang Dien's reputation has been impacted by this as well Management Group: Mr Vuong Van Minh recently took the position of General Director of Khang Dien House, succeeding Mr Le Quang Minh The Board of Directors modified the title of the General Director and the Chairman Constant management changes harm the company's reputation, reducing sales and management effectiveness However, with Khang Dien, this danger is unlikely to

occur,

Market Commentary: Khang Dien had to dissolve his indirect ownership company during a difficult period in the real estate market, and the business situation showed signs of deterioration, indicating that the company's vitality was gradually being reduced by market signals

2 Objective factors

Market: Liquidity in the real estate market has dropped significantly since the peak

of land fever in the first half of 2022 Any change in market circumstances might threaten Khang House's capacity to sell items Finance: The firm was inefficient; sales declined by 34% in the second quarter of 2022, and business cash flow was substantially negative Khang Dien's decision to increase bond mobilization occurred

in the setting of a less-than-ideal business environment

Competition: Market purification will be intense, with only powerful real estate firms with true promise remaining in the market, besides competing with enormous real estate corporations Capital Land, Vin Group, and others

Demand: Especially in developing cities with growing economies and populations, innovative new real estate developments are frequently in high demand

Technology: As evidenced by Khang Dien's portfolio of masterpieces utilizing pinnacle 4.0 technology, the real estate development industry keeps advancing with new technologies

Ill SWOT OF KHANG DIEN HOUSE

Strengths

- Legal transparency

- Strong economic potential

- Implement the project on schedule and

with high quality

- Ideal living space

- Safe capital structure

Weakness

- High selling price

- Assets in inventory are still high

- Home products are still far from the central area

Opportunities

- Young population’s ability to buy

- Develop the peripheral area thanks to

the trend of moving

- Strong asset growth

- Create new investment channels for

foreign investors

Threats

- Rising interest rates

- Many stiff competitors

- Pressure to maintain high profits

Table I SWOT analys

IV RISK MANAGEMENT PROCESS (7RS)

1 Recognition of risks

According to BVSC, Khang Dien is in danger due to the shrinking amount of available land, and there are still difficulties with site clearance, finishing the land allocation process, and determining land usage fees Additionally, Khang Dien's stock tends to decline in 2022 while the amount of inventory rises noticeably in comparison to earlier years Khang Dien's dependence on external loans due to negative cash flow caused by debt accumulation is another major financial issue

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2, Rating/ evaluation of risks

According to the data above, Khang Dien is considered to be at medium risk if it modifies its financial structure, focuses on managing inventories, and does not invest excessively in subsidiaries Khang Dien is still capable of existing Large long-term debts, however, also have a significant impact on the financial standing of connected parties like banks and suppliers Khang Dien's risk rating is a low likelihood, high magnitude according to the likelihood and magnitude matrix below

Magnitude |

Low Likelihood High Likelihood High Magnitude High Magnitude

Low Likelihood High Likelihood Low Magnitude Low Magnitude

Likelihood

Table 2 Likelihood and Magnitude matrix

3 Responding to significant risks (4Ts)

The 4Ts of risk management (Tolerate, Treat, Transfer, and Terminate) along with the level

of risk are low likelihood and high magnitude, the Treat method comes as the most suitable option for handling the risks relating to Khang Dien Group To further elaborate on the Treat approach for Khang Dien Group, we will examine the specific actions the company can take through its risk analysis

« Heavy negative business cash flow:

Cost-cutting measures: Khang Dien Group can analyze its current expenses and identify areas where cost reductions can be made without affecting the quality of its services or projects For instance, the company can optimize its procurement process, reduce overhead costs, or renegotiate contracts with suppliers

Sales and marketing strategies: Khang Dien Group should also focus on improving its sales and marketing strategies to increase revenue This can be conducted by providing customers with incentives, launching creative marketing campaigns, or training sales personnel to improve their abilities and boost the conversion rates of potential buyers

« Long-term debt secured by land use rights:

Renegotiating loan terms: The company can approach its lenders to renegotiate the terms of its loans, such as extending the repayment time or lowering the interest rate This can help ease the company's debt burden and provide more financial flexibility

Alternative financing options: Khang Dien Group can consider alternative financing options, such as equity financing, mezzanine financing, or partnerships with investors These options can provide additional capital without increasing the company's debt burden and may offer more favorable terms compared to traditional bank loans

+ Shutting down its affiliate:

Diversifying business operations: To reduce the dependence on a single business unit, Khang Dien Group should consider diversifying its operations The company can explore new segments within the real estate market, such as commercial properties, industrial properties, or affordable housing projects This can help spread the risk and provide more stability in the face of market fluctuations

Seeking new opportunities: The firm should acttvely seek out new opportunities in the real estate market by conducting market research, attending industry events, and connecting with other professionals in this field This can help the company stay updated on the latest trends and identify potential projects or collaborations that could benefit its long-term growth

4 Resourcing controls

In recent years, Khang Dien has continued to introduce large-scale projects, bringing to market product lines such as apartments, townhouses, and villas such as Safira and Jamila